A few questions about Glencore’s (supposed) plans for Syrah and graphite (and a certain technology metal, vanadium)

The graphite world has gone dizzy at the news of unsourced reports out of Australia that Glencore is about to make a bid for Syrah Resources (ASX:SYR), owner of the (claimed) largest graphite resource in the world. Syrah’s shares have rocketed, as have those of its neighbour in Mozambique, Triton Minerals (ASX:TON), whose stock rose Friday by more than 20% by early afternoon trade in Sydney.

But, at least here in Australia, no one seems to have stopped and asked the question: is Glencore really that interested in graphite? If it is, then it will no doubt want to become a dominant force in that market (which would explain partially the sudden ignition of Triton shares).

Getting into graphite would a major step for Glencore. Its present commodity divisions are nickel, zinc, oil, agricultural, iron ore, copper, coal, alumina/aluminium — and ferroalloys (which include vanadium, of which more in a moment).

Just one point: this is being written late afternoon Friday in Sydney. It is possible that there might be an after-market announcement by Syrah. So this post may have to be updated, but even if there is this would not affect my main point — which is that Glencore getting involved in graphite would be far more significant than an actual takeover of Syrah (or any other graphite producer).

But, as well all know, Syrah’s Balama project has a vanadium by-product, and Glencore is one of the world’s largest producers of primary vanadium.

Until now, vanadium has been used mainly for high-strength steel alloying. It occurs in more than 60 different minerals (including phosphate rock and titaniferous magnetite). Its steel applications have accounted for 87% per cent of the vanadium consumed. However, customers and regulators are putting pressure on steel makers to increase metal strength and there are tighter regulations for rebar steel.

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The metal is now in the process of a massive game-changer — and the name of that game-changer is Vanadium Redox Batteries (VRBs for short). It’s all about the ability of national power grids to store energy.

But it is the needs of power grids that is now dominating discussion of vanadium. Grid operators, renewable energy generators and utilities are looking for bulk-energy storage technologies to increase the efficiency and stability of the national grid systems. They want to be able to tap stored energy if peak demand exceeds expectations, or there is a problem — the cut-out of a large wind farm or the shut-down of a nuclear plant. The grid operators need to avoid voltage sags and spikes, brownouts or even blackouts. VRB systems are currently being built or operated. Sumitomo Electric Industries and Hokkaido Electric Power Co are spending $200 million on a grid-integrated plant with 60 megawatts of storage capacity. Alongside, incidentally, the companies are also building a 20MW peak capacity lithium-ion battery system. In China, Dalian Rongke Power has installed a VRB storage system at a 50MW wind farm at Shenyang. The company is also developing a new industrial park to manufacture up to 4.3 gigawatts annually of VRB capacity at a cost of $400 million.

Recently, London-based research house Hardman & Co noted that the vanadium industry is dominated upstream by South Africa, Russia and China and downstream by the steel industry. But with new producers (there are at least four Australian-listed companies involved with vanadium projects) and new end uses in the form of storage batteries, the vanadium sector might be going to undergo a dramatic change. As Hardman added: “The vanadium supply chain is seen by some observers as semi-functional, based as it is on a creaking South African mining infrastructure, ageing Russian mines and a tariff-happy Asian trade”

The unsourced reports that Glencore and Syrah have been talking informally raise more questions than they answer. Is Glencore going to move into the graphite sector, in which case it will be a game-changer for the whole sector? Is Glencore going to develop a new mine from scratch with all the uncertainties that entails? Or is it interested mainly in the vanadium, either in terms of extracting it or making sure it stays in the ground until needed?

Comments

tobyjack

Interesting indeed. According to this article the deal is questionable……..”http://www.metalbulletin.com/Article/3360041/HOTLINE-Glencore-not-looking-to-buy-graphite-vanadium-company-closely-or-otherwise.html#ixzz379eDnstm

Thank you for your comment TobyJack, and for the opportunity to remind people not to use our comment space to build your Twitter following. TobyJack, your tweet address and request to be followed was deleted.

This said, I do appreciate your perspective and am watching this story unfold with great interest; and as usual, would like to thank Robin Bromby for his excellent journalism in covering this story — we are lucky to have him.

An unnamed source and I spoke last night and he provided me with a genuine piece of evidence that would suggest that Glencore getting into graphite is indeed: a rumor, and could not be farther from the fact. I think in lieu of what’s happening in the market due to this rumor that it is now Glencore’s responsibility to put out a news release denying this allegation or the ASX should step in and get this cleared up. While the energy of speculation is indeed making this an interesting week in the sector, transparency and putting out news releases that clarify when material changes are indeed taking place is public markets 101 and I doubt that many exchanges would tolerate this…

At the end of the day, time will tell — and as Triton is a client of ours, good on them for lifting another 20% as we love a win-win for our clients and their respective shareholders.

The rumour here seems more along the lines Glencore is after SYR for it’s vanadium – not so much graphite. This is also a little odd since Chinalco is said to be interested in an off-take for SYR’s vanadium. The engineering arm of Chinalco is, I believe, also undertaking the vanadium design work.

Despite the excellent reporting of the dubious nature of the rumors surrounding Syrah and Glencore– Syrah’s stock was up 9% to a 52-week high in Australia last night….Syrah’s market cap just shy of a billion dollars.

Roger Bade at Whitman Howard in London made this comment on Friday:
“In spite of the opportunity, Glencore has not yet denied stories that they intends to bid for the Mozambiquan graphite and vanadium developer Syrah”.

I have to say I am astonished that this story has been allowed to run without any further clarification. As Peter Epstein notes on this thread, some investors might be asking the same questions next week.

if this is just a rumour, an investigation must be done. Who spread the rumour? Did Syrah insiders have benefited from it? syrah, despite lacking enough metallurgical results, missed the announced offtake with Chinalco, likely to miss the other announced offstage with the uk group, its a 1bn$ company… no current revenues and no proof that they will ever have future revenues… you might want to take a look at the recent story of Gowex in Spain to check what happens when you believe all what management have to say.

There are loads of criticism, but a glaring lack of constructive suggestions as to specifically what could be done about it. Is it just more fun to pillory Glencore and Syrah, than to do the hard yards of thinking through the problem?

Robin Bromby raises the right question when he asks what it is that really interests Glencore. Glencore currently dominates the world vanadium market, controlling, among others, the output from the two largest vanadium mines in the world, at Maracas in Brazil, and Rhovan in South Africa. It is patently obvious that they will be keenly interested in any new mine which is going to have initial production around 10-15% of global demand, has huge reserves, and very probably the world’s lowest production costs.

Recognizing that, it would be childishly naive to imagine that there would be no contacts, no soundings, between Glencore and Syrah. Glencore may or may not be interested in graphite (more likely not), but they are intensely interested in vanadium.

So where does that leave Glencore and Syrah? What “allegation” can either of them possibly deny? All that’s been said, in this unsourced report, is that they have had “informal talks”.

Ahh, I know! Perhaps Syrah could issue a clear denial that there has been any formal approach. That should clear the air!

Ooops! That’s exactly what they have already done in an announcement to the ASX, on the day this brouhaha started.

Let’s get real. Neither Glencore nor Syrah can issue formal confirmation of something which has not happened, and may never happen. They can’t stop people guessing, and taking action based on those guesses.

If people have any constructive suggestions as to possible action, let’s hear them. It’s time for something more positive than what we have heard to date.

Robin, thanks for your response. You are right; it is not about the companies – and that is my whole point!

Because it is the companies who are being attacked, and blamed for the fiasco, unfairly, I believe, and you obviously share this view.

The associated problem is that it’s not obvious what we could expect from any regulator. They operate, probably necessarily, with two-valued logic – either there is a bid, or there is not. No shades of grey. Everyone knows that Glencore will always be interested in Syrah’s activities – because vanadium is Glencore’s lifeblood, and Syrah has lots of vanadium.. Anytime someone lights a fuse, the interest will flare.

Who started it this time, and why? You, as an experienced and respected journalist would be very aware of how reluctant journalists can be to disclose their sources. Can the ASX force such an exposure? Probably not.

So we come back to my question: does anyone have a constructive solution?.

Islay always misses the point. Born with rose coloured glasses, the love child of SYR. I very much doubt Islay is just another enthusiastic investor who is in love with his stock.

Of course you are right – the question the authorities here should be asking is WHO LEAKED THIS INFORMATION AND FOR WHAT PURPOSE.

There can be only two sources of the leak – SYR or Glencore. These are the two parties privy to the “informal discussions”.

The information may also have been leaked in a briefing to one of the brokers, who leaked to the AFR. Brokers recently upgraded the stock .

AFR, having received this information from their “source” (if it was anyone other than SYR/Glencore), would have rung SYR and/or Glencore for a “comment”. This is normal practice.

SYR would, therefore, have been aware the article was due to hit the streets the next day. Why did SYR not put out a n announcement before the market opened – before it’s sp shot up 25-odd%. Why did they wait until mid-day for a TH. By that time, how many shares exchanged hands. Who gained.

In the days leading up to the “leak” it was obvious something was “on” by the sp rise/volume. Just need to read HC – they seem to know before the market, lol.

Quite easy for ASX to do what is expected of them by the investing community.

1. Check who was buying in the lead up to the AFR article
2. Check who was selling into the rally

Not that hard to work out After all the recent company fiascos such as NCM, FGE, etc, it’s the least ASX can do.

Perhaps Glencore’s interest in SYR’s vanadium may not be so honorable, if one casts their mind back to In 2004 when Xstrata closed its then recently purchased Windimurra Vanadium plant in WA. The closure had the effect of increasing Vanadium prices received for Xstrata’s other Vanadium mines around the world. There were also the “rumours” put out regarding Olympic Dam. A few extracts of this transcripts are below.

Read the transcript of “The X Factor”, Ticky Fullerton’s report into the foreign takeover of the Western Mining Company.
Date: 22/02/2005http://www.abc.net.au/4corners/content/2005/s1308087.htm
———————————————————————————————–RODERICK SMITH, FOUNDER WINDIMURRA VANADIUM MINE: We went to Zug to see Glencore who, at the time, were the largest marketing agents in vanadium worldwide, and we explained what we were doing and showed them our feasibility studies, and they agreed to enter into a joint venture with us.

TICKY FULLERTON: Roderick Smith says the deal was negotiated with Glencore, but it was Xstrata that became the controlling partner in Windimurra, buying the mine and leaving its founder with a share in the profits. In 2003, with vanadium prices depressed, the mine halted production. Nothing usual about that.

RODERICK SMITH: Well, the most extraordinary thing happened, Ticky. In early 2004 the vanadium price started to increase very strongly. It went from $1.40 and by April was over $3 a pound, which was very profitable for that mine, so we started to raise with Xstrata, “Gee, when’s the opening ceremony? When are we going to see this thing back into production?”

TICKY FULLERTON: Windimurra never returned to production, let alone profitability. Instead, in May last year, Xstrata shut down the mine altogether, claiming prices were too volatile and did not justify the growing black hole in their investment.

MARC GONSALVES: It lost our shareholders $186 million in terms of invested capital and losses, running losses. The decision that we at Xstrata had was, at some point, to say “Could we continue to do that?”, and we couldn’t.

TICKY FULLERTON: Though many disputed facts will be argued out in court, what is clear is that Xstrata spent millions to ensure that no-one else would run the mine. They refused to sell, instead dismantling state-of-the-art machinery. Today the plant is in bits.

RODERICK SMITH: They have scrapped it. They chopped it up. They destroyed it.
———————————————————————————————–and this on Olympic Dam

TICKY FULLERTON: One month after the rumours had sabotaged Michelmore’s tour, Xstrata formalised its bid. The opening gambit was a low $6.35 a share. Not very attractive when WMC shares had been driven up over $7, but it was a typically aggressive play.

ROBERT GOTTLIEBSEN: When you’re with bidding for a company, always talk down the assets you are buying.
———————————————————————————————

Yes, I covered the whole Windimurra episode for The Australian newspaper at the time. The West Australian government had just spent $30 million to aid the mine when Xstrata closed it down, and removed all equipment and buildings to make it very difficult to re-open. In fact, I refer to this in my weekly column in that newspaper today.

yes but they are repeating themselves
as leaks occur and falls into the hands
of advantours

If you ever looked at the Broker research
notes and recommendations by Deutche
and Credit Sui you’ll note all figures is
pumped out like the same telling character Islay aka. Micke Chester.
Now if you know abit of history you’d
be aware of the allegded corruption
scandal Mr. Chester is involved in in
Australia for bribing and falsified, in the
sence of over descripted potentiel of
explorations target and derived valuations. You’d be well versed to check out the background of the Syrah Directors, they employment history and go even further to check out family backgrounds.

Lastly you should possible base your
assumptions of earnings, the well hidden
trails of any economic derivable products
and sincerely tucked away to others responsibility and completely lacking in details.

And then there is the majority holding
into another Syrah involved company
named Copper Strike…needless the
say the Chairman sits on a large chunk
of that stock too.

Another ramped up spin story from the
same class of people who’d love to
hate you for telling it the way it is.